So good afternoon, everyone. Good afternoon. It's my pleasure to welcome Onur Geng, EVA CEO. Good afternoon, Anur.
Good afternoon.
Thank you very much for taking the time. We're delighted to host you today. So thanks thanks very much. So the agenda for today, we have about twenty five minutes set aside to discuss the investment case. Afterwards, we will open the floor for a round of questions, and then we will end with an investor survey.
You can use the devices you have in front of you to participate. So welcome welcome to to to participate. So if we start with the, I guess, the elephant in the room, the tender offer for Banco Sabadell, can you walk us through the updated deal scenario? And what do you see as the strongest case for Sabadell shareholders to accept the deal?
The strongest case, so what is our pitch to Savala shareholders is what we are
asking? Correct.
Well, I mean, it's gonna be a repetition for the ones who have been listening to us for sixteen months because it has taken sixteen sixteen months from the launch of the offer to today where we opened the expectation period yesterday, as you might know, the tender offer expectation period. But a few a few bullet points for the Sabadell shareholders. Number one, we do think it's a very straightforward transaction because it's an in market consolidation play. In market consolidation is ultra relevant in our view in an industry where the costs are going up in an area where, it is mostly fixed costs, which is technology. We mentioned it multiple times in the past.
The cost of technology within the total BBVA, it used to be twenty first twenty percent five years ago. Today, it's 26%. It keeps going up. In Spain only, it's 33%. So one third of the costs of BBVA in Spain is technology, and it has been growing very, very in a in a in a very high way.
And given that it's fixed costs, larger scale helps. That is why, for example, again, in the in the context of Spain, our technology costs, this one third, is €1,100,000,000. EVA spends every year €1,100,000,000 to technology. We don't know the exact numbers in this categorization of Sabadell, but something similar because they're also a very large bank. Why are we spending hundreds of millions of euros, in our case, €100,000,000 to technology?
Two different banks serving the same market with two different systems, two different applications, two different brands. It just doesn't make sense. As a result, there are a lot of synergy, potential there's a lot of synergy potential in this transaction. And we estimated our presentation on on Friday has explained this in detail, but €900,000,000 of synergies because we are consolidating within the market. 900,000,000 of synergies.
Is this big? This is pretax, obviously, €900,000,000. As compared to the profit base of, of Sabadell, which is 1,600,000,000.0 they are expecting, €900,000,000 is a lot of money, a lot of money. So in market consolidation, very straightforward transaction with a lot of synergy potential, and it's also a complementary business. They are very good in SMEs.
We are very good in retail. We are very good in corporate business, so it's a good match. All combined, it makes sense. What does this mean for the Sabaday shareholder? Coming back to your question.
Mhmm.
Given this huge synergy potential, we have basically extended, in our view, a very attractive offer some of the shareholders. You might have seen this with regards to the undisturbed price. We offered a 30% premium, 30% premium, when we launched the offer. It was 42% premium versus the one month VWAP of the undisturbed price, 42% premium.
And if you compare this 42%, for example, to the deals announced afterwards, other tender offers like ours, unsolicited, that happened mainly in Italy, and three of them have actually reached the success, three of the five offers launched after BBVA. This 42 compares very favorably as compared to 19% in one case, 14% in the others, 13%. So when others are offering 14% premium after rounds of increase of the price Mhmm. Upfront, we offered 42% premium, unforeseen in these type of transactions. So for the Sabadell shareholders, a lot of synergies, which is then reflected into a very high premium.
And as a result of this premium, our EPS earnings per share upgrade that we are estimating for a Sabadell shareholders, Solutario and and Solo versus, as part of UVA, it's 25% EPS upgrade. So it's a great deal. It's a great deal. And as we said many times before, it's a straightforward transaction, a lot of value. We do think it has to happen.
It should happen. But if it doesn't happen, fine also. We also announced at the July our stand alone plan, 36,000,000,000 excess capital return in the next four years to our shareholders.
Mhmm.
Amazing plan in our view.
Okay. If it happens, this deal, fine, because it makes sense. But if it doesn't happen, we have a plan to deliver. We are very excited about that stand alone plan ourselves as well. If it doesn't happen at these terms, we are very happy to move away and go into our own stand alone plan and execute on that plan. I hope it was clear.
Yeah. It was very clear. Thank you. If we move on to capital, which I guess is another key pillar of your story, you're running at a 13.3% CET one ratio, and you're guiding, as you just said, to €36,000,000,000 available for distribution between 2025 to 02/1928. That's a lot of money on a stand alone basis.
How do you think about deploying that capital between ordinary dividends, buyback, loan growth, and potential m and a?
Again, we are very clear on this one also for a long time, but we have a few principles that we go really hard on. Number one, every organic growth opportunity has to deliver above cost of equity in through the cycle in the long term, and we have established, in my view, a very good system. I mean, we spent a lot of energy on this as a team, But every single loan that BBVA gives in any geography, and I was giving the example of any country, actually, you pick. But a loan that you give today in Peru, in my desktop, I can go, and I can check the return of that loan at the transaction level and at the client level for the work return on capital of that client. So the organic growth has surpassed a certain return above cost of equity through the cycle.
You can invest in a client. You have a pool of investment, but in the in the medium term, you have to make sure that that client delivers returns. That's the first principle. All, initiatives that consume capital has to deliver above cost of equity through the cycle. The second principle, capital is scarce resource.
They compete with each other, different initiatives who are basically demanding that capital. They have to compete with each other, and whichever is is delivering the best return should get that capital. That's the second principle that we have. With those two principles in mind, all else being equal, meaning at the same return levels though, we have a preference. First, we prefer organic growth because organic growth, it builds franchise value.
You basically ensure the stability and long term consistency of your returns. So organic growth, all else being equal, I underline once again, organic growth comes number one. Then we go share buyback, because share buyback or any form of payout, but share buyback because it has no execution risk. Again, all else being equal, you do share buyback. And then, if it makes strategic sense, and and in that context, we like domestic consolidation as we are trying to do with Sabodell, but going into new markets and so on, very difficult on those.
But in in market consolidation, and if it makes sense also financially, strategically and financially, then you can do M and A. But in that order, organic growth, share buyback with very limited execution risk or no execution risk, and m and a as long as it makes strategic sense and financial sense. That's how we how we look into it. And together with the execution that we have been doing, this capital discipline and this way of being very rigid about these concepts, which we think is a good thing, we have delivered one of the best in the European banking tangible book value growth as a as a bank. We have the highest return on tangible equity in Europe among the 15 largest European banks.
BBVA is number one, and we do have the best ASR. If you look into the €100 that you put into BBVA stock, at the beginning of 02/2019, which is the date that the new management team of BBVA has started, since then, the nine €100 today is €497, €397 appreciation. That €397 appreciation, European banking is 220, around 200 for the Spanish banks. So we are doing better than others because we execute well, and we have this clear ideas about the capital discipline. So 36,000,000,000, grow as much as you can as long as it's profitable.
Go back to share buybacks and deliver give it back to the shareholders if you cannot grow.
Thank you.
That's kind of the motto. No?
Thank you. That clarifies. Yeah. If we look regionally, and we focus now on Spain, in Spain, volumes and deposits are still growing very strongly. They've been growing around five to 6% per year, so that's very impressive.
As rates stabilize, do we expect NII to continue to grow, like, in a mid single digit pace?
In the medium term plan, we have given guidance for every single geography. In Spain, We weren't specifying it at the NII level, but we specified that the revenue level, which is mostly NII. But revenue growth, or we said it low to mid single digits, so along along the lines that you mentioned. And we think it's a very fair assumption that this happens for a few reasons. Number one, Spain is doing really well as a country, so GDP growth is quite robust for three or four reasons.
Number one, immigration is a very pro immigration country, and it helps with the growth in GDP, number one. Number two, it's a service based economy. What we have seen after COVID is that if you're a service based economy, you typically grew better than a product or manufacturing based economy, and Spain tourism and, again, people moving to Spain because we have a lot of sun in the country. It's a it's an it's a wonderful place to live to work from there and so on. So the service based economies have grown in general better, and Spain is clearly a service based economy relatively speaking.
And then the third one is we have received a lot of funding from Europe. That's the third reason why Spain we have received €165,000,000,000 in what we call next generation EU funding. EU, basically, after COVID, decided to give a lot of money to southern countries. Spain was one of the benefactors, and we have received €165,000,000,000, and half of this was in grand, roughly half, which also helped the investment cycle in the country and so on. To cut the long story short, Spain has grown really well.
Last year was 3%, and this year, we are expecting 2.5 to 3%, again, in a context where Europe grows less than 1% because of these structural factors. If Spain grows as such, the banking sector we think is gonna grow also quite healthily, because Spain has deleveraged, as you know very well. For many years, lending growth was negative. For fifteen years, deleveraging in a consistent manner. And since last year, we are turning back the curve in terms of growth.
In this underleveraged economy, if GDP growth is there, banking sector is gonna grow healthily. And then within that, BBVA has been growing better than others. We have been gaining 30 basis point market share on average in the last three years. We expect that to continue. All combined, it will lead to mid single digit volume growth in Spain.
And if you take some margin potential decline because of competition, the revenue growth, as you said, would be low to mid single digit in that range, three to 5% range going forward. Oh, that's But quite positive. Quite positive.
Okay.
And if we go to to the other important market for you, which is Mexico, Mexico remains a profit engine, there is no doubt about that, but faces FX volatility, lower rates, and raising competition. Can you walk us through how resilient earnings are against these headwinds? What underpins your confidence in sustaining high single digit loan and revenue growth with declining cost of risk? And could you give us your assessment of the risk and potential catalyst around the USMCA renegotiation, as as the renegotiation approaches?
USMCA. Okay. So maybe let's divide it into two, the bank and then maybe the economy, and let's start with the bank. We were discussing with Luisa, Patricia, and Ricardo, I this morning. I've been in the job for seven years now, in this job.
For seven years regarding BBVA Mexico, our bank in Mexico, it has always been, and I I I would not con I would not conmode, always been positive surprises over and over again many times. Because BVA Mexico and the banking sector in general, but particularly BVA Mexico, we have some structural advantages that is gonna you you ask about resilience. That's gonna ensure the resilience of our earnings. And I would give a few things. First of all, on the banking sector, we we talk about it in the calls as well, Cecilia, as you know.
But banking sector debt over GDP is 33% in Mexico. This is one of the lowest levels even in the emerging markets landscape. It is lower than Peru, lower than Colombia, lower than Brazil is 72% on that same metric, more than twice. 33% banking debt over GDP. It's lower than Nicaragua.
Although Nicaragua is is a wonderful market, I'm sure, but it's lower than many other geographies in the in the footprint than in the emerging markets landscape. That helps banking sector to grow healthily without creating too much cost of risk. That is why we have always grown, EVA Mexico, double digit or slightly below double digit many years because of this low penetration level. This banking sector penetration loss of banking sector level penetration is something to register when you think about Mexico. But more importantly, in my view, about, again, the resiliency of earnings, I've seen many banks in my life because, I mean, I'm at BBA for fourteen years now.
But before that, I've seen many other banks in many geographies. What we have in Mexico is really unique. Because in banking, I measure the strength of the franchise with the cost of funding of advantage versus competition and with the position in hard to compete cash flow transactional area. But if you are in those areas, good, you ensure the resiliency of the bank. In Mexico, we have 44% market share in payroll accounts.
44%. I mean, a country like Mexico, 44% of the salary paid in the country, private sector, public sector combined, 44% goes through BBVA. Every month, you receive that salary in the account of those customers. We have 39% market share in acquiring in this POS machines. SMEs, companies, they do have POS machines, merchant traffic in the country.
39% goes through BBVA. And it's very tough to replicate this market advantage. You only do this all the time, and you only do this by accumulating knowledge and the IT systems and so on behind that is not that easy. So we have this unique bank. If leverage is gonna continue to go up, the growth is gonna be there.
And if you have this really amazing bank, we have the best NPS, customer satisfaction, we have the best app, we we measure it by far the best app, you would benefit from this. That's why you're asking about the resiliency of the earnings. I would encourage all of you, on this to go back to the history of UVA Mexico. You would see that you do have this great bank. Then regarding, the country and USMCA, first of all, again, resiliency of the country.
In the short term, what we have seen was Mexico this year, we were expecting a lot of uncertainty because of the tariff discussion, the uncertainty from, the tariffs and also the discussions with the Trump administration and everything else. But even this year, which is a very tough year for Mexico, in the first six months of the year, exports have increased by 4% in dollars, and FDI, foreign direct investment into Mexico, it has grown eight percent six months this year versus six months last. It's still growing. So in the short term and we were expecting a in the second quarter call, we said that we have we are expecting a negative growth rate in Mexico this year. The latest numbers that we see is again very exceptional, and we are most likely gonna revise our forecast to growth, not so much, but to growth in Mexico versus an expectation of a recession.
So in the short term, it's it's going well, even better than what we we would have expected in this very uncertain environment. But the thing that I would say regarding the medium to long term is and you ask about USMCA. I don't think it's it's or let me say it this way. It's in the best interest of USA to keep Mexico fine, to have Mexico in an okay situation. You wouldn't want the neighbor 130,000,000 country, an unstable, not growing country right next to you when you complain about immigration.
So if things don't go well, the immediate outlay the result of this would be immigration and so on to US and so on. You would ex you would want a stable, okay environment. You would want the benefit of Mexico. If I was The US, that's what that's what I would have done. And more importantly, there are some structural advantages of Mexico that cannot be ignored.
The labor cost of Mexico on average versus the labor cost in a low cost state in The US. Indiana, I think they did the comparison with Indiana. It's one seventh. Seven Indiana, one Mexico. One seven.
It's not like a percentage no. It's seven times. So if, as US companies, if you want to compete with other competitors, if you want to compete with China, I do think US needs, in one form or another, Mexico, a stability right next to its borders and a a structural cost advantage that cannot be ignored. Cut long story short, you never know what's gonna happen out of these discussions. We have seen back and forth on the trade discussions many times in the in the recent past.
We'll see what happens, but we expect normality and positivity out of this. And if Mexico does okay, not so good, okay, the average growth rate GDP growth rate of Mexico in the last fifteen years is only 2%. If you expect okay Mexican economy, you would expect very good PBVA Mexico.
Thank you. And now moving on to Turkey. You've guided to a contribution of Turkey of 10 to 12% of group net profit
In the medium term plan.
Through 2020 to '28. Yeah. 02/1928. But this depends a bit on macro stabilization. How do you derisk that guidance if inflation and rates don't fall as planned?
How do we derisk it? You cannot derisk it. If the country doesn't do well, it will obviously have an impact on you. The only thing I can tell you is that, I'm as you might know, I'm Turkish. I'm very close to that market.
As long as the team, the minister and the team, that is in charge of economy today, as long as they continue to do exactly what they have been doing, I see that possibility of Turkey Turkey going off frail is much lower. I'm typically very negative on Turkey. People here know me, around this. But in the last two years, what I've seen in terms of what they are doing has been it has been the right things to do. So I'm quite positive on the fact that that possibility of that derailing is not gonna happen.
But let's assume, as you say I mean, yesterday, also, they announced, the medium term plan of the country. They are expecting twenty eight point five percent inflation this year, 16 next year, nine two thousand twenty seven, 8% inflation 02/1928. A bit optimistic, I would say, but still the intention and the strength that they put into their words of they will deliver this or this this inflationary path is what counts, I think it's very positive. So in general, as long as the team stays in there, I'm quite positive that it's gonna be fine. But if it doesn't happen as such, as you say, going back to your question, let me not mutilate your question.
The thing that that differentiates BBVA is in wherever we are, we are either number one or number two bank in the big countries. We are number one in Mexico. We are number two in Turkey. We are number two in Peru and so on. In Turkey, we have, in our view, the best bank in the country.
The return on tangible equity of our bank in Turkey is much above than the average of the industry, the average of others others, private banks. If Turkey doesn't go on this path of of normalization but something else, the only thing I can tell you is that being the best bank in the country in terms of returns, the strength of the franchise, they will always deliver value in my view. The best thing about banking is anyone can attack it. The good thing about banking is that the banking sector has to be alive or the economy to be alive, which means if you have a a positive premium, and in the case of Turkey, this positive premium is very large versus the average of the industry, whatever the conditions are, as long as, again, the country is not in in in a in a full crisis mode, Whatever the conditions are, you will always deliver above the average of the industry. And if the industry has to survive, the average has to survive.
And if you are above, you will always be delivering above your cost of equity. So our focus is to make sure that we maintain this competitive advantage that we are the best bank in the country in terms of returns, in terms of franchise. If, the situation turns out to be different than what we were expecting, what we are expecting at the moment, I still think we will deliver decent returns because of this, because we have the best bank, by far, the best bank based on numbers. I'm I'm quite objective, obviously, on these things based on numbers. If you have the best bank, you will still deliver.
Yeah. And now to finish with profitability and and, I guess, valuation. You've got it to a quite impressive average ROT of 22% in for the midterm, obviously, versus an average in Europe that is around 14.5%. That said, the bank trades at a discount to the sector. What do you think the market is still underestimating in your story?
I should I should ask the people here or to you. Yeah. We have, as you said, 22% goal, of return on tangible equity. But more important than the goal, we have already delivered 20%, which is the number one in Europe in terms of return on tangible equity. And despite that, yeah, why why are we trading at the the market is the market.
You cannot fight with the market because you can you don't know what's really happening in the in the pipes, of the market. Rather than thinking about why the market doesn't really understand us, As a as a team, our focus has been and will continue to be no. No. We deliver. We deliver.
If we deliver, whatever the market might be thinking today will be corrected tomorrow as long as you deliver. If you deliver what we said we would deliver, the 36,000,000,000 excess capital I mean, we have a €90,000,000,000 market cap. If you deliver 36,000,000,000 excess capital in four years, more than 40% of the market cap delivered to the shareholder in four years, it's quite a nice number. So our focus is to deliver that number. Because if you deliver that, which means share buyback and so on, you would be buying our shares at cheap.
Fine. No problems whatsoever. So our focus is rather than complaining about,
yeah, but why the why does the market not see us and so on?
No. No. Continue to deliver deliver the numbers because the market will catch up if you do the if you do the do that delivery. At the end of the day, what differentiates BVA?
What is our equity story different than any other bank out there? Number one, we are diversified. We are in many countries, and every market helps you diversify. For some reason, there's less value attached to it, but I do think it's an important notion. And the shareholder can diversify itself, but having this portfolio also helps on multiple dimension.
That's number one. We are diversified different than others. Number two, I mentioned it partially, but it is very important very important in the core countries that we operate. We are either number one or number two. In Spain, we are number three, but in retail banking in Spain, we are number two also.
And again, Mexico, are number one. Turkey, number two. Peru, number two. All the large markets, we are number one and number two. Having these leading banks with very large scale is an amazing advantage.
Many others, basically, no one actually has this kind of one or two in many markets kind of a play. That's the second reason that we think, we are gonna be differential. Number three, we are very good in digital, and now we added sustainability to our strategy. In digitalization, we claim, and it is proven by numbers, that we acquire more clients, relatively speaking, digitally than any other bank. We make our client franchise larger through digital capabilities.
We put so much money, so much thinking into this. Creating this advantage was in in our view was worth it, and it is now delivering delivering results. If you combine them all, yeah, I think we should be trading at a higher price, but fine. We'll deliver. We'll get the numbers, and then we do the numbers. The market will see it as well.
We still have some time. Maybe we can open the floor for for a question or two.
Hi. Thank you very much. So two questions, if I may. The first one relates to the medium term targets that you gave with your second quarter results. So I'm interested in the profile.
It looks like quite a significant pickup from where you were at the 2024 in net profit, GBP 10,000,000,000 to possibly growing to 14,000,000,000. So how should I think about the the pickup? Is it gonna be back end loaded twenty seven, twenty eight? How should I think about '26 in the context of getting from the starting point to the end point was the first question, please.
So let's do the first one then. There is not a hockey stick in this in these numbers. As you said, 10,000,000,000 is what we delivered last year. But in the first first half of this year, six months, we did 5.44, so five close to 5,500,000,000.0 already in the first six months. So if you take the average of the four years in the medium term plan, the average is 12,000,000,012 billion.
10 to 12, average 12, it's not gonna be a hockey stick. You would see that, especially starting next year, there is a very positive dynamic that we think we're gonna be benefiting from, which is we have been growing very nicely market share wise, but also the the countries that we are in are also growing in terms of banking sector. But all that activity growth that was happening is being used to consume the decline in the in the rates because we are asset sensitive, rate sensitive. When rates come down, we are being hurt. In the case of Spain and Mexico, we have been growing very nicely in activity, but that activity growth was being used to absorb the decline in the customer spread because of the rate declines.
Starting next year, assume, maybe it's wrong, but based on the assumptions that we put into our presentation, the rate situation would normalize. So if you continue to grow as we are expecting to grow in activity, rather than being used to absorb the customer spread decline, it's gonna flow directly to the bottom line. And there's a result starting from next year. And this year, again, in the first six months, we did 5,440,000,000.00 already above last year. It's gonna be a good year this year, but starting from next year, it's gonna be in these core markets of Mexico and Spain, you would continue to see a growth in the bottom line, which is then leading this average 12,000,000,000.
In short, it's not a hockey stick. It's not four. Very different fourth year and so on. It's an increasing curve because of the dynamic that I just explained.
Okay. Thank you. Very clear. And the second question relates to Mexico. So based on what you've been saying the last few months when I've listened to your presentations, you seem reasonably relaxed about, the macro environment, in Mexico.
You've obviously got a fantastic franchise which continues to deliver. Very specifically, therefore, from an asset quality perspective, you've got some reasonably significant overlays. So, I mean, could we possibly expect to see some of those being released over the next several quarters?
Some, but it's it's less overlays that has been the story of cost of risk. I mean, the cost of risk, we guided less than 350 basis points you might have seen in the second quarter call for the cost of risk. The overlays or the beyond business as usual components in that is relatively small. In the second quarter, we mentioned it in the call. In the second quarter, you might have seen that because every quarter we do we do it.
When there is a decline in GDP growth expectations, you take a hit, forward looking hit as an overlay. So we did take that negative hit from the, macro assumptions that Mexico is gonna, be in recession this year. Now we do think it's gonna not gonna be in recession. So in the third quarter, most likely, there will be some positive coming from the this macro IFRS nine provisioning. But there, it's a small amount.
The core thing is business as usual, regular provisioning, And on that one, what we are seeing is that it's quite robust, quite positive, better than our guidance, better than our expectations for one single reason, which is, again, the economy is not doing that bad, better than what we would have expected in this uncertain environment. I gave you the numbers. FDI is up 8%. Export volume is up 4%. Labor market is still doing quite well.
More importantly, the rates are coming down. When rates come down, the it helps on the cost of risk. So cost of risk at the fundamental level is still quite positive.
Thank you very much. Yeah.
Should we now move to the unless there is any other question. So we move to the investor survey, please.
Can I also vote? I can bias the sample size of, one. I can bias the whole thing.
I I won't read the answers. Just just the question. What would cause you to become more positive from BBVA shares?
We see the results right away. Oh, it's interesting. Okay. Oh?
Uh-huh. Macro resilience and outperformance in Mexico and Turkey. K?
Okay.
Where are your where are you most excited about at BBVA?
I hope it's not number five. Oh, even 7%.
Capital generation capacity. That's a good one.
Yep.
Number three, how do you expect BBVA's RoTE to develop over the next few years by 2028 relative to 02/2025? Modestly higher.
Yeah. K. Number four, how do you see potential risks to BBVA's capital and dividend? Okay. An overwhelming upside risk on better earnings and lower
think you can cut it here. It has been has been very good.
Number five, which of BBVA's businesses do you think has the greatest potential to positively surprise consensus over the next two, three years? Mexico, sustaining high growth despite lower rates.
I will say, I'll give it this one. I'm yeah. Mexico. Independent of whatever happens, we'll do really good.
Perfect. Well, I don't think there is a sixth one. I think we're we're done now. Thank you very much for for taking the time.
Thank you to all for joining.